After Oxy reported a 15% increase in third quarter net income thanks to higher production and commodity prices, Chief Executive Steve Chazen told analysts the Los Angeles-based company’s California business might be broken out during future restructuring.

But there are caveats.

The company first wants to sell its minority stake in Middle Eastern assets – a move Mr. Chazen announced earlier this year and said could be finalized by the first quarter of 2014. And earlier this month Oxy said it was looking for a buyer for 4.5 million acres of oil and gas production it holds in the central U.S., including assets in North Dakota, Wyoming, Utah, Colorado and Kansas – another deal Oxy is anxious to close. Those midcontinent businesses produced about 32,000 barrels of oil per day in the third quarter and have 211 million barrels of proved reserves.

Spinning out California would be a big shift for the company, which is the largest holder of oil and gas acreage in the state, with more than 2.1 million acres. The state accounts for a third of Oxy’s U.S. production – roughly 89,000 barrels of oil a day and 260 million cubic feet of natural gas a day.

“As far as California, the fundamental question is ‘can it operate better as a standalone business with a different model?’” Mr. Chazen said in response to an analyst question. That different model would be a company that is more entrepreneurial, spends more on new production projects but pays little or no dividend. Oxy currently has a dividend of $2.56 per share.

The company has made strides in reducing operating costs in California by 17% in the past year and plans to increase spending on drilling by $500 million in 2014, bringing the total budget to about $2.1 billion.

Despite greater efficiency, Oxy’s California prospects pale in comparison to its holdings in the Permian Basin of Texas, which accounts for 55% of Oxy’s U.S. oil production at 146,000 barrels per day. Texas’ easier regulatory environment and existing infrastructure in one of the nation’s oldest oil provinces prompted the company to create a new “exploitation team” in the Permian to identify more drilling locations. Spending there is expected to expand by $500 million in 2014.

Any potential California business split would come in “the simplest form” possible, Mr. Chazen said, meaning either an initial public offering or giving shares of the new business to existing Oxy shareholders in a tax-free spin-off.

Corrections & Amplifications:
A photograph of an Occidental Petroleum Inc. oil field in the Permian Basin near Midland, Texas, that previously appeared with this article has been removed at the request of Bloomberg News.

Comments (4 of 4)

Where is the spoiling of the environment due to fracking the past three years in Texas?

The Monterey Formation is 1 to 2 miles below the surface. That is too deep to so any likely environmental damage to water aquifers.

And in test holes drilled in California's Monterey Formation thus far indicate that using steam pressure, not chemicals, would be the best extraction method. The Orcutt Oil Field was where the Monterey Formation was discovered. Permits for 136 new wells have been recently approved. Santa Maria Oil Company is going to use reclaimed sewer water for its steam extraction operations.

So no chemicals or local water resources would be used in the Orcutt Oil Field.

California has fallen three years behind Texas' fracking revolution during a period of deep economic recession. Who was the more responsible? Texas or California? I submit Texas on all counts.

7:12 pm October 29, 2013

An Ex-Texan wrote:

Perfect example of liberals' choice: CA has oil and wants companies to be environmentally responsible whereas TX has oil and doesn't really give a hoot about its environment (and it shows). And that's fine. If it's worth it, then do biz in CA, but if not, then don't.

Republicans, by contrast, would eliminate this choice by eliminating environmental responsibility from the equation. This idea of choice is baffling to most Republicans.

6:17 pm October 29, 2013

Greg Feigel wrote:

As a shareholder, I like it.

Sell / cutaway assets where political risk is high (Sharia law countries, Marxist states, kleptocracies, confiscatory socialist and fascist regimes, etc.) and invest elsewhere...an excellent long term strategy.

5:48 pm October 29, 2013

H. CRAIG BRADLEY wrote:

OXY WANTS TO BE WHERE THE GREATEST PAYOFF LIES ( Not Calif. Anymore)

Oxy is anxious to spin-off assets that no longer offer the required potential for future revenue growth ( production has peaked). California is too anti-business and anti-development to make it worth Oxy's worth to hang around in the future. Texas in contrast, is a very oil business oriented state with low taxes and business-friendly state government. They also have large oil and gas deposits yet not fully tapped, hence more bang for Oxy's buck.